Financial Statements

financial statements

are periodic reports published by the company for the purpose of communicating a company's business activities to those outside of the company & provide key information needed to make decisions about a company

the four primary financial statements are

1. income statement

2. statement of stockholders’ equity

3. balance sheet

4. statement of cash flows

Income Statement

financial statement that reports the company's revenues and expenses over an interval of time. The income statement compares revenues and expenses for the current period to assess the company's ability to generate a profit from running its operations (if it generated enough revenue to cover the expenses).

Net income

If revenues exceed expenses, then the company reports net income.

Net loss

If expenses exceed revenues, then the company reports net loss.

Alternative Names for income statement

the statement of operations, statement of income, profit and loss statement, or "P&L."

Income Statement Equation

Revenue - Expenses = Net Income/Loss

Heading

includes the company’s name, the title of the financial statement, and the interval of time covered by the financial statement

Single underline

generally represents a subtotal in a financial statement

Double underline

generally represents a final total in a financial statement

Statement of Stockholders' Equity

• Bridge between the Income Statement and the Balance Sheet

• Explains how each equity account changed from the beginning to the end of the period

• a financial statement that summarizes the changes in stockholders' equity over an interval of time. Stockholders' equity arises from two primary sources—common stock and retained earnings.

Stockholders’ Equity equation

Stockholders’ Equity = Common Stock + Retained Earnings

Common Stock

• external source of equity

• represents amounts invested by stockholders (owners) when they purchase shares of stock

Retained Earnings

• internal source of equity

• represents all the net income minus the dividends over the life of the company

• the accumulated net income earned since the inception of the corporation and not yet paid to shareholders

Common Stock equation (calculate ending common stock)

Beginning common stock + issuance of stock = Ending common stock.

Retained Earnings equation (calculate ending retained earnings)

Beginning retained earnings + Net income - Dividends = Ending retained earnings